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Relying on the "Bank of Mum and Dad" for a Gifted Deposit

View profile for Amanda Payne
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It is reported that 1 in 20 home buyers rely on parents for a gifted deposit. The numbers are increasing as house prices rise. Many property purchasers, particularly for first time buyers rely on a gift of cash for all, or part of the deposit from family to help them get onto the housing ladder.

 When a property is purchased using a gift you need to alert your Conveyancer as early as possible. Legal checks have to be carried out to comply with anti-money laundering rules which can significantly slow down the purchase transaction. This would include providing evidence of where the money comes from by way of a bank statement, together with evidence of how the money was accrued. This is required from both the giver and receiver of the cash gift.

Mortgage Lenders also need proof and evidence that the money is a gift and not a loan. When property is purchased jointly, parents may wish to gift a sum of money to just their own child and not both of the Purchasers. Further consideration then needs to be given in terms of joint ownership. On that basis, it would be recommended that the parties hold the property as Tenants in Common in unequal shares. We would also recommend the parties enter into a Declaration of Trust document setting out clearly the position and the intention of the parties.

When applying for a mortgage relying on a gifted deposit, the Lender needs to be made aware at the outset. You also need to make any Mortgage Brokers or IFA’s aware so that they have the right paperwork in place. This is crucial to avoid delays in the Conveyancing process. Mortgage Lenders now need a letter of consent from the person or people gifting the deposit, along with a bank statement showing evidence of the funds to be gifted.

Top tips on giving or receiving a gifted deposit

1. Make sure your Conveyancer is aware that some of the purchase price is going to be made by a gifted deposit.

2. Provide evidence to your Conveyancer and Mortgage Broker/IFA that the money is a gift to either one or both parties (if a joint purchase), and not a loan.

3. Ensure that you have the right proof of identification. Photocopies of identification is not acceptable and could become problematic if the person giving the gift is either overseas or unavailable.

4. Have available the necessary evidence, such as a bank statement. As part of the process involves anti money laundering checks to confirm that the money was earned legitimately.

5. For the person giving the gift, they may need to take their own financial or legal advice as to what implications giving a gift will mean to them. The Donor needs to be aware that once the process has been completed, they have no right to the return of the money or any interest in the property at all.